What’s the role for buy-to-let home buyers in India’s urban #housing markets? #rentals

Several questions on housing have been plaguing me. And because my current work engages with housing only tangentially, I find myself background thinking a lot of issues related to housing security, real estate markets and the nature of home ownership. The role of rentals in the housing market is something I’m rather excited about. So today’s question draws from the debate on in the UK about the growing role of buy-to-let home buyers. What’s the scenario in India?

We do know that speculative property purchases are on the rise in India. Notwithstanding the current slowdown, the post-liberalisation era has meant that favorable home loans terms and rising incomes have combined to put real estate into that sweet spot; real estate purchases have become a normal component in the portfolio of salaried urban Indians. Most of these investments are in second (or third) homes. Yet, there is the rise in the rental housing supply is not proportionate and we do know that a large number of houses in cities are lying locked up (ref: 2012 MoHUPA report on housing, which recommended push for rental housing).

Is there a larger role for buy-to-let home buyers in the Indian context?

Unlike the UK, Indians cannot avail of a buy-to-let mortgage, which are suited specifically for properties where rental incomes are more than the monthly installments. However, Indians do take out regular home loans to buy properties specifically for rental purposes. Though archaic rental laws are usually blamed for the slowness of rental markets, it is also true that speculative buying largely includes suburban properties that yield lower rents. The thrust of speculative housing investments has been the lure of higher returns through sale, not through rentals, which are relatively weak. Further, property management for rentals is not yet a well developed aspect of the real estate services industry and the responsibilities of being absentee landlords are daunting indeed.

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About ramblinginthecity

I am an architect and urban planner, a writer and an aspiring artist. I love expressing myself and feel strongly that cities should have spaces for everyone--rich, poor, young, old, healthy and sick, happy or depressed--we all need to work towards making our cities liveable and lovable communities.

Encouraging formal renting practices would be a good thing for Indian real estate market. But how to do initiate it is challenging. the fact that home ownership is so primal in our psyche, it will be a hard sell to bring in laws that prefer rental over ownership. A few ways it could be done, is by mandating that developers have to become defacto rental managers for a share of housing they build. i.e. they cannot sell the a share of units till a set number of years they have been on rent. This would have two benefits, one it will immediately start adding rental units to the market, and formalizing rental markets. As an additional benefit to new buyers the developer will keep more interest in the quality of construction as they will have to make sure their rental units are still just as good 5-10 years down the line.